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4 – Consumer spending trends
to 2030
1

Key points

Table 4.1: Historic trends in budget shares for major spending category (% of total spending)

• Total consumer spending could grow
by around 2% per annum in real
terms on average to 2030, but this
could vary from around zero real
growth for food, clothing and
alcohol & tobacco to around 2.5-3%
for housing and utilities, health
and recreation and culture.

Spending category

• Housing and utilities now account
for around a quarter of total household
spending, up from just over 20%
before the financial crisis. This could
rise to around 30% by 2030 as real
utility prices continue to increase
and the housing market picks up.
• Spending on financial services,
overseas holidays and other
discretionary spending has been
squeezed since the crisis, but should
show some recovery in the longer
term as the economy picks up.
• Consumers will, however, remain
more price-conscious as on-line
retailers and high street discount
stores continue to take an increasing
share of the market even after the
economy recovers.

Budget
share
in 1963 (%)

Budget
share
in 2007 (%)

Budget
share
in 2012 (%)

Change
Change
since 1963 since 2007
(pps)
(pps)

Alcohol and tobacco

8.4

3.5

3.6

-4.8

+0.1

Clothing

10.5

5.5

5.9

-4.6

+0.3

Communications

0.9

2.2

2.1

+1.2

-0.1

Education

0.5

1.4

1.5

+1.0

+0.1

Food

24.1

8.5

9.2

-14.9

+0.7

Furnishing

7.6

5.5

5.0

-2.7

-0.6

Health

1.0

1.7

1.6

+0.6

-0.1

Housing and utilities

13.5

21.0

26.0

+12.5

+4.9

Miscellaneous services

6.4

14.2

10.5

+4.1

-3.7

Recreation and culture

7.8

11.7

10.6

+2.8

-1.2

Restaurant

9.8

10.1

9.9

+0.1

-0.2

Transport

9.7

14.6

14.4

+4.7

-0.2

Total

100

100

100

0

0

Source: PwC analysis of ONS data

Introduction
Total consumer spending accounts for
over 60% of UK GDP and is therefore
critical from a macroeconomic
perspective.
From a business perspective however,
it also matters greatly what proportion
of total spending is allocated to particular
categories like food, clothing, housing
and utilities, transport and education.
Over a longer period of time, the mix
of spending changes as consumer
preferences, the relative prices of
different goods and services, real incomes,
technology and other factors (e.g.
inequality, taxes) evolve over time.
Businesses need to take these factors
into account in their long term strategies.

Section 2 above looked at the short
term outlook for consumer spending.
In this article we provide a longer term
perspective of past and future prospects.
The discussion is organised as follows:
• Section 4.1 describes and discusses
historical trends in consumer
spending patterns, particularly in
the period since the financial crisis;
• Section 4.2 uses our existing
household consumer spending
model to project consumer spending
patterns to 2030;
• Section 4.3 looks at alternative
scenarios for how consumer patterns
may evolve between now and 2030;
• Section 4.4 draws out possible
implications for business; and
• Section 4.5 summarises
and concludes.

1 This article was written by Barret Kupelian and John Hawksworth.

UK Economic Outlook November 2013

27

Long term trends (1963-2012)
The National Accounts divide consumer
spending into 12 broad categories.
Figure 4.1 shows how spending across
the main categories (referred to below
as ‘budget shares’) has varied since
1963, which is the first year for which
comparable data is available from the
Office for National Statistics (ONS).
Table 4.1 sets out this information in
more detail and compares how the
spending mix has changed over time.
The most notable changes since 1963
are that:
• Basic goods such as food, alcohol,
clothing and furnishing saw a marked
decline in their budget share.
Most dramatically, food declined
from 24% of total spending in 1963
to less than 10% in 2012.
• In contrast, the largest rises were
recorded in the housing and utilities,
transport and miscellaneous spending2
categories. Most importantly, 2011
marked the first year when the
spending share on housing and
utilities broke the 25% barrier.
• Spending in other categories like
recreation and culture, communication,
education and health3 have not
changed materially as a proportion
of total spending.

Figure 4.1: Historical trends in budget shares for major spending categories
(% of total spending)
30

% of total household spending

4.1 – Historical consumer
spending trends

Housing & utilities

25
20
15
10
5
0
1963

1967

1971

Alcohol & tobacco
Furnishings
Restaurant

1975

1979

1983

1987

Clothing
Housing & utilities
Transport

1991

UK Economic Outlook November 2013

1999

2003

2007

2011

Food
Recreation & culture

Source: PwC analysis of ONS data

Have the long term changes in the
budget shares described above been
reflected in the trends observed in
the period since the financial crisis?
To answer this question, we have
analysed consumer spending trends
since 2007 in more detail.
Trends since the financial crisis
(2007-2012)
This period is notable for two reasons.
First, it covers a period where the UK
economy experienced its sharpest
post-war recession. Second, it is a period
in which household finances have come
under significant pressure with price
inflation rates outstripping wage growth
(as discussed in Section 2 above) with
an associated average decrease in real
consumption of 0.6% per annum since
2007. So our analysis offers a guide to
how households have behaved in a
period of considerable stress.

Table 4.1 shows that:
• The share of spending on housing
and utilities rose from 21% in 2007
to 26% in 2012. This reflects sharp
rises in real rent levels and utility
bills, which has squeezed spending
in other more discretionary areas.
• The main impact of this has been
reduced spending in the miscellaneous,
recreation and culture and, furnishing
categories. Around 50% of the
spending in the miscellaneous
category is made up of financial
and insurance services, which
took a particular hit in the crisis
as households reduced their debt
position (e.g. on credit cards and
other forms of unsecured loans).
• The share of spending on food
increased marginally from 8.5% in
2007 to 9.2% in 2012. Although this
is a small change, it is worth noting
that 2008 was the first time since
1973 when the share of household
spending on food has increased.
This reflects rising prices of food
in that year.

2 Miscellaneous spending includes financial services and personal care goods and services not included in other categories.
3 Note that spending on education and health here refers only to private spending by households.

28

1995

Education
Miscellaneous services

% per annum average change (2007-12)

Figure 4.2: Relative price and volume growth by spending category since 2007
8
6
4
2
0
-2
-4
-6
-8
Alcohol
and tobacco

Clothing

Volume growth

Communication Education

Food

Furnishing

Health

Housing and Miscellaneous Receation
utilities
services
and culture

Restaurant

Transport

Relative price change

Source: ONS, PwC analysis

The main theme coming out from the
above analysis is that, given the squeeze
on available spending money since
2007, households have re-allocated their
spending away from non-essential items
like recreation and culture, furnishing
and other miscellaneous items towards
essential items like housing, utilities
and food.
In analysing changes in budget, it is
useful to distinguish between the effect
of relative price changes and the effect
of growth in the volume of goods
and services consumed, as shown
in Figure 4.2.

• The relative price of education has
risen very strongly (more than 4%
per annum) in large part due to the
sharp rise in university fees for
domestic students and also because
of the continued robust demand
for high-quality education from
international students who are
willing to pay a premium for
both private schools and leading
universities.
• The price of housing and utilities has
increased at around 3% per annum
due to a mixture of rising rent levels
and higher utility bills (electricity,
gas and water).

Figure 4.2 shows that:
• There has been a strong downward
trend in the relative prices of clothing
(cheap imports from the Far East and
other low cost producers still seem
to be a factor here), recreation and
culture (cheaper books and
magazines) and the miscellaneous
spending category (record low
interest rates and household
deleveraging).

• Alcohol and tobacco as well as food
prices have also increased because of
high commodity prices on international
markets (although this effect is
gradually coming to an end) and, in
part, due to continued increases in
excise duties on alcohol and tobacco.
• The relative price of transport has
risen owing to a combination of
higher petrol prices and above
inflation increases in train fares.

Turning to volume growth, Figure 4.2
shows that:
• Poor economic conditions coupled
with the price rises mentioned, has
led to some decrease in the demand
for (paid for) education. On the other
hand, the decrease in demand for
formal tertiary education may go
some way to explain the resurgence
in demand for apprenticeships and
other forms of vocational training.
• Volume growth for the miscellaneous
category is down, led by a contraction
of demand for financial services.
This pattern is in line with the
broader macroeconomic picture in
which households have been paying
down their debts, thereby reducing
demand for financial products.
• Volume growth for housing and
utilities increased by around 0.8%
per annum. This is despite an
average price increase of around 3%
per annum mentioned above,
reflecting the limits on how far
consumption of these essential
items can be reduced.

UK Economic Outlook November 2013

29

Figure 4.3: Baseline projections for household budget shares in 2020 and 2030

% of total household spending

35
30
25
20
15
10
5
0
Alcohol
and tobacco
2012

Clothing
2020

Communication Education

Food

Furnishing

Health

Housing and Miscellaneous Receation
utilities
services
and culture

Restaurant

Transport

2030

Source: ONS for 2012, PwC baseline model projections for 2020 and 2030.

• The most rapid volume growth was
seen in spending on clothing (6.6%
increase per annum) and recreation
and culture (1.5% per annum), both
of which saw a decline in relative
price levels.
• The sharpest contractions in volume
growth (excluding the categories
mentioned above) were seen in
alcohol and tobacco, furnishing,
transport, restaurant and food.
All but one of these categories
(furnishing) saw a relative price
increase, which helps to explain
reduced volume demand together
with the squeeze from rising rent
and utility bills.
Box 4.1 provides a more detailed
breakdown of which areas of household
spending have grown or contracted
most markedly since 2007.

4.2 – Baseline projection
for consumer spending
patterns to 2030
In the March 2011 edition of UK Economic
Outlook4, we presented a household
consumer spending model and used this
to project patterns to 2030. The key
inputs to this model, which was based
on econometric analysis of data since
1963, were:
• Real income levels (proxied by real
consumer expenditure);
• Relative price levels, which in turn
were driven by world oil prices,
exchange rates and tax (indirect,
excise duty) changes and a time
trend; and
• Other socioeconomic factors such
as income distribution and the age
structure of the population.

4 “How might UK consumer spending patterns change over the next 20 years?” UK Economic Outlook, March 2011.

30

UK Economic Outlook November 2013

We used our model to project consumer
spending patterns to 2030 based on the
latest available actual data. In projecting
relative price levels we made some
additional judgemental assumptions
where we considered that there have
been significant structural changes,
which meant that the past was not an
entirely reliable guide to the future.
In particular, we assumed that:
• Real housing and utility prices will
not increase as quickly in the future
as their historical average rate
(1.6% compared to 2.3% per annum
trend rate), which was due to some
exceptional factors that seem unlikely
to continue to the same degree
(e.g. sharp energy price rises since
the late 1990s).
• Real food prices are assumed to
rise by 1.5% per annum, reflecting
increased demand from emerging
economies; this is a reversal of the
real food prices falls seen in previous
decades, but is more representative
of recent and likely future trends
in our view.

• Real transport costs are assumed to
rise at a trend rate of around 1% per
annum to reflect potential higher
prices associated with environmental
factors (e.g. carbon taxes and other
energy taxes) and a potential
extension of congestion pricing.
These judgemental adjustments are
open to debate, but give more plausible
long-term projections for the affected
categories than using a model derived
purely from historical data. It should be
also noted that we are focusing here
on long term trends rather than short
term cyclical variations and other
temporary fluctuations in household
budget shares.
Baseline projections
Figure 4.3 shows our baseline model
projections using the following
additional assumptions:
• Total real consumption expenditure
grows at an average rate of 2.1% per
annum, which is in line with the
latest official estimates of the Office
for Budget Responsibility (OBR).
• Income inequality remains at the
latest estimated levels.
• The relative size of different age
groups evolves as in the latest ONS
projections, implying a steady rise in
the proportion of people above the
age of 65.

Figure 4.3 shows that the shares of
spending on food, alcohol and tobacco,
and clothing are projected to continue
to decline steadily as in past decades.
It may be more surprising that this also
applies to the share of spending on
transport, although in fact this has
already been on a declining trend
since the late 1980s as shown in
Figure 4.1 above.
These downward trends are offset by
rising shares of spending on housing and
utilities, recreation and culture and,
miscellaneous services in particular.
Again this represents a continuation
of long-term historic trends, although
a reversal of recent ones in the case
of miscellaneous spending (financial
services etc.) and recreation and
culture, which have been squeezed
during the recession but are expected
to recover as the economy revives
in future years. Private health spending
is also boosted by real income growth
and an ageing population.

The second ‘pessimistic scenario’
assumes:
• Weaker total real household expenditure growth (1% per annum).
• Rising real oil prices (by 2% per
annum to $141 per barrel in 2030
at today’s dollar values).
• Higher indirect taxes (VAT up to
25% by 2030 to make up for slower
growth in other tax revenues).
The results are summarised in Table 4.2
in terms of the projected budget shares
in 2030 in these alternative scenarios
relative to our baseline projections.
Average annual real spending growth
rates in the period to 2030 in different
scenarios are then shown in Table 4.3.

4.3 Alternative scenarios
We have developed two alternative
scenarios to explore some of the
uncertainties that inevitably surround
any such long term projections.
The first ‘optimistic scenario’ assumes:
• Stronger total real household
expenditure growth (3% per annum).
• Declining real world oil prices (by
2% per annum to $69 per barrel in
2030 at today’s dollar values).
• Lower indirect taxes (VAT down to
15% by 2030 due to stronger growth
boosting other tax revenues).

UK Economic Outlook November 2013

31

The results in Tables 4.2 and 4.3 show
that there could be significant variations
in spending shares and growth rates
depending on the macroeconomic
assumptions adopted, although effects
vary by category. Those spending
categories that are less responsive to
changes in income, such as food, alcohol
and tobacco, and housing and utilities,
have projected real growth rates that
tend to vary less across different scenarios.
The opposite is true for categories such
as transport, recreation and culture,
and restaurants where demand is more
sensitive to income changes.
On the other hand, some broad trends
remain robust across all scenarios e.g.
the shift in spending from food, alcohol
and tobacco towards housing and
utilities, as well as health (partly driven
by a greater number of people in the
65+ age bracket).

Table 4.2: Household budget share projections for 2030 in alternative scenarios
Spending category

2012 spending
share

2030
baseline
projection

2030
optimistic
scenario

2030
pessimistic
scenario

Alcohol and tobacco

3.6%

2.6%

2.1%

2.5%

Clothing

5.9%

3.9%

3.8%

3.9%

Communications

2.1%

2.1%

2.1%

2.0%

Education

1.5%

1.5%

1.4%

1.4%

Food

9.2%

6.4%

5.4%

6.3%

Furnishing

5.0%

5.3%

5.8%

5.2%

Health

1.6%

1.7%

1.7%

1.7%

Housing and utilities

26.0%

30.0%

28.5%

29.8%

Miscellaneous services

10.5%

12.2%

13.0%

12.5%

Recreation and culture

10.6%

11.2%

11.8%

11.1%

Restaurant

9.9%

10.0%

10.4%

9.9%

Transport

14.4%

13.2%

14.0%

13.5%

Total spending

100%

100%

100%

100%

Source: ONS for 2012, PwC model scenarios for 2030

4.4 – Implications for
business5
As discussed above, challenging
economic conditions have changed
consumer spending patterns and habits.
The most notable change is that
households are now spending a greater
proportion of their budget share on
essentials like food and household
goods. As a result, consumers have
become more sensitive to the prices
of essential items and are focused on
reducing wasteful spending.6 In contrast
to the pre-crisis decades, a cultural
threshold seems to have been crossed
- a consumer who looks out for low cost
deals and reduces waste (particularly
but not only for essential items) is now
considered ‘smart’.

Table 4.3: Average annual real growth rates by household spending category
in alternative scenarios (% pa: 2013-30)
Category

Baseline projection

Optimistic scenario Pessimistic scenario

Alcohol and tobacco

0.2%

0.0%

-1.0%

Clothing

-0.2%

0.6%

-1.2%

Communications

2.0%

3.1%

0.8%

Education

2.0%

2.7%

0.8%

Food

0.1%

0.0%

-1.0%

Furnishing

2.4%

3.8%

1.3%

Health

2.5%

3.3%

1.3%

Housing and utilities

2.9%

3.5%

1.7%

Miscellaneous services

3.0%

4.2%

2.0%

Recreation and culture

2.4%

3.6%

1.3%

Restaurant

2.2%

3.3%

1.0%

Transport

1.6%

2.9%

0.7%

Overall

2.1%

3.0%

1.0%

Source: ONS for 2012, PwC model scenarios for 2013-2030 average growth rates

5 We are very grateful to Lisa Hooker, David Oliver and Matthew Tod for their helpful insights on changing trends in the retail and consumer sector,
which we draw upon in this part of the article.
6 As recognised, for example, by Tesco in its recent report ‘Using our scale for good’ (2013/14 half year update).

32

UK Economic Outlook November 2013

The emergence of the ‘smart’ consumer
has affected how businesses compete
in the marketplace. For example:
• Hard discounters (e.g. Aldi, Lidl etc.)
have flourished on the back of
demand for their low-cost but
reasonable quality products; for the
first time, some of these ‘discounters’
have increased their market share
above 10%;
• High street discounters (e.g.
Poundland, 99p stores and Home
Bargains) have increased their
presence in secondary locations
(areas close to the high street that
have high footfall). They have been
particularly successful in responding
to demand for high-volume, low-
cost products such as everyday
consumables (shampoos, detergent,
cleaning materials etc.);
• Specialised charity shops have
flourished on the high street and are
now considered as a good way of
getting a bargain on a wide range of
second hand goods (ranging from
clothes to books);
• The larger out-of-town supermarkets
have responded to these trends by
expanding the breadth of their
in-house low cost products.

During the same period, we have also
seen a gradual increase in the role
of the internet in retail transactions
(including online trading sites such
as eBay). The latest official data from
the ONS shows that:
• Internet transactions now make up
around 10% of total retail sales,
up from just 3% in 2007.
• One in ten pounds that is spent
on clothing and footwear is now
through online sales, compared
to around 6% in 2010;
• Some other sectors, however, still
have a long way to go e.g. only
around 3% of food sales are through
online channels (fast and reliable
home delivery remains a potential
barrier here, although some
customers may be happy to order
online and pick up their grocery
purchases in store later).

This gradual shift in demand from
traditional high street to digital channels
has had a number of important
implications for businesses:
• Revenue: A shift to digital has not
necessarily translated to extra demand
via higher revenues, but businesses
have been able to protect their revenue
(rather than losing out to online
competitors) by setting up multichannel distribution networks;
• Expenses have, however, increased
as the shift from a ‘single-channel’
to a ‘multi-channel’ distribution
framework has meant more spending
on setting up and maintaining an
e-commerce infrastructure; this
creates the need for a strategy that
better integrates digital and traditional
channels into a single framework;
and
• Competition has intensified as it has
become easier to compare prices for
similar products. In the medium term,
this could lead to some downward
pressure on prices (and consequently
profit margins) as comparison
websites become more popular
across an ever wider set of products.
• Strategy: Retailers have to be much
clearer on their proposition and
targeting. The success that high
street discounters have experienced,
even five years after the financial
crisis, highlights the benefits of
implementing a transparent strategy.

UK Economic Outlook November 2013

33

The emergence of ‘smart’ consumers
along with the simultaneous shift to
online sales means that businesses
are under increased scrutiny, both
on pricing and on wider issues such
as environmental impact and working
conditions in overseas suppliers.
Businesses need to take long term
trends into account when planning
ahead. The key questions for companies
operating in retail and consumer
markets would include:
• How well do you understand the
sensitivity of demand in your markets
to relative price, income movements
and internet penetration?
• How might factors such as an ageing
population affect demand patterns
in your markets in the future?
• Do you have models that allow you
to capture these effects in a rigorous
way and project forward demand
in alternative macroeconomic
scenarios?
• Do you have not just a digital
strategy, but a business strategy
for the digital age?7

4.5 Summary and
conclusions
The period since 2007 has been a stressful
time for UK households with negative
real consumer spending growth and
price pressures mounting. Households
have had to make tough choices as:
• housing and utilities have taken up
an ever greater proportion of total
budgets; and

“ Housing and utilities
spending share could
rise to around 30%
by 2030 as real utility
prices continue to
increase and the housing
market picks up ”

• food prices have risen, which is a
reversal of historical trends.
As growth resumes and consumption
starts to pick up over the next few years,
we expect that:
• Total consumer spending might grow
by around 2% per annum in real
terms on average to 2030, but this
could vary from around zero real
growth for food, clothing and alcohol
& tobacco to around 2.5-3% for
housing and utilities, health, and
recreation and culture.
• Housing and utilities now account
for around a quarter of total spending,
up from just over 20% before the
financial crisis, and this could rise to
around 30% by 2030 as real utility
prices continue to increase and the
housing market picks up.
• Spending on financial services,
overseas holidays and other
discretionary spending has been
squeezed since the crisis, but should
show some recovery in the longer
term as the economy picks up.
• Consumers will, however, remain more
price-conscious as on-line retailers
and discount stores continue to take
an increasing share of the market
even after the economy recovers.

7 This latter point is discussed further on our Total Retail website. http://www.pwc.co.uk/retail-consumer/total-retail/move-from-multi-channel.jhtml

34

UK Economic Outlook November 2013

www.pwc.co.uk/economics
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the
information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy
or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and
agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on
the information contained in this publication or for any decision based on it.

PwC UK helps organisations and individuals create the value they’re looking for. We’re a member of the PwC network of firms in 158 countries with more than 180,000
people committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/uk.
© 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network.
Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
The Design Group 21550 (11/13)


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